Fed signals no rush to hike rates as economy hits soft patch

Wed Apr 27, 2016 5:12pm EDT
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By Lindsay Dunsmuir and Jason Lange

WASHINGTON (Reuters) - The Federal Reserve left interest rates unchanged on Wednesday, but kept the door open to a hike in June while showing little sign it was in a hurry to tighten monetary policy amid an apparent slowdown in the U.S. economy.

In a statement that largely mirrored the one issued after its last policy meeting in March, the U.S. central bank's rate-setting committee described an improving labor market but acknowledged that economic growth seemed to have slowed.

It also said it was closely watching inflation and noted that global economic headwinds remained on its radar, though it made no mention of the risks they posed, as it had last month.

"The committee continues to closely monitor inflation indicators and global economic and financial developments," the Fed said following a two-day meeting.

Prices for U.S. equities edged up after the announcement, while the dollar was little changed against a basket of currencies. Prices for longer-dated U.S. Treasuries rallied.

Traders kept their bets that the first rate hike of 2016 would come in September and gave less-than-even odds of a follow-up hike by December. Fed policymakers in March forecast two hikes this year.

Investors currently see a 23 percent probability that the Fed's overnight lending rate will rise in June, up from 21 percent prior to the decision, according to CME's FedWatch group.

"This latest statement has not laid out a strong position for a June rate hike," said Bill Irving, a portfolio manager with Fidelity Investments.   Continued...

U.S. Federal Reserve Chair Janet Yellen holds a press conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington March 16, 2016.REUTERS/Kevin Lamarque